KARACHI: As air travel comes to a standstill with countries locked down to fight the coronavirus pandemic, there are many airlines in the world which are at risk of going bankrupt in the near future.
Among the worst-hit carriers is the Pakistan International Airlines (PIA).
According to an article published by bloomberg.com, a spokesman for PIA says that losses and debt of PIA have become too great for the company to handle alone and that options suggested to the government include a debt-to-equity swap and issuance of long-term bond.
The global airline industry has never had it so bad, not even after the 9/11 terrorist attacks in the US.
Airlines could lose a quarter of a trillion dollars in revenue this year, according to the International Air Transport Association. Most carriers will go bankrupt by the end of May if they can’t find support, Sydney-based CAPA Centre for Aviation said recently.
Airlines can lose a quarter of a trillion dollars in revenue this year because of coronavirus lockdowns
Which airlines are most at risk? Like the virus, the crisis is indiscriminate, affecting each one from budget operators to national flag carriers. Aircraft manufacturers and their suppliers also are under immense pressure, with Boeing Co calling for billions of dollars in state support and Airbus SE extending credit lines and canceling its dividend.
Using the Z-score method developed by Edward Altman in the 1960s to predict bankruptcies, Bloomberg News filtered out listed commercial airlines to identify the ones most at risk of going bust, based on available data. The calculations don’t take into account government bailouts or other funding sources that could help keep operators alive.
While the list focuses on Asia, mostly due to high debt levels, European carriers aren’t immune, as the collapse of UK regional airline Flybe Group Plc proved. According to Altman, scores of 1.8 or below indicate a risk of bankruptcy and scores over 3 suggest sound footing. Indebted low-cost carrier Norwegian Air Shuttle ASA and Air France-KLM both landed below the threshold, as did American Airlines Group Inc. and SkyWest Inc.
Governments around the world are in talks with aviation companies about financial support, and those with deep-pocketed backers — such as Delta Air Lines Inc. with billionaire investor Warren Buffett — will have access to other avenues for cash.
Qatar Airways’ Chief Executive Officer Akbar Al Baker warned that many airlines would go bust, limiting the scope for takeovers.
“People who were bragging about not taking state aid and being independent are now themselves all over the world asking for state aid,” he said on Thursday on Bloomberg Television.
The Z-score involves five variables measuring liquidity, solvency, profitability, leverage and recent performance. The model initially had accuracy rates of over 95 per cent in predicting bankruptcies, but that has come down to between 80pc and 90pc based on a year before insolvency, Altman said in a 2018 interview.
A representative for AirAsia Group Bhd declined to comment, while PNG Air Ltd didn’t respond to a request for comments. The communications director for Kenya Airways Plc, which is now operating only a handful of local flights, couldn’t immediately comment.
SpiceJet Ltd sees “no possibility at all” of failing, has maintained adequate cash flows and expects a surge in demand as the virus is contained, a spokesman said. Virgin Australia Holdings Ltd, which has furloughed 80pc of its workforce and slashed flights to a bare minimum, said it is taking measures to rapidly reduce its cost base to preserve cash.
Asiana Airlines Inc said it secured a bridge loan and will receive $1.3 billion from Korea Development Bank and other creditors. It also said financials would improve once HDC Hyundai Development Co and its partners complete their acquisition of Kumho Industrial Co’s stake. Also, the Korean government is discussing the airline industry and taking measures to provide emergency funds to large companies, Yonhap News reported on Thursday.
The Bogota-based company has offered its 21,000 employees unpaid leave and is negotiating payment terms with suppliers.
Norwegian Air is trying to secure a government lifeline worth up to $270 million under certain conditions, and this week two Nordic banks were approved to provide a guarantee for the required 10pc for the first tranche. The airline declined to comment further.
Published in Dawn, March 28th, 2020